NY Comptrollers, CalSTRS Retaliate Against Mylan Board

A recently filed form reveals the EpiPen company ignored majority shareowner votes again, and the response is ferocious.

Now that Mylan’s June 22 shareholder vote totals are public —revealing the EpiPen maker’s decision to ignore majority shareowner votes—New York’s city and state comptrollers, as well as the California State Teachers Retirement System (CalSTRS) are calling for an immediate board reform.

Mylan filed an 8-K form Tuesday, which contained the voting results of its recent board meeting. The results not only showed that 58.98% of shareholders were against the appointment of compensation committee chair Wendy Cameron to director, but also a landslide 83.5% of votes were cast against Mylan’s “say-on-pay” proposal—a proposal in which New York City Comptroller Scott Stringer led a coalition of institutional investors (which includes CalSTRS) in a “vote no” campaign against.

In response, Stringer, New York State Comptroller Thomas DiNapoli, and CalSTRS Director of Corporate Governance Anne Sheehan sent an overnight letter to Mylan’s independent directors demanding Cameron resign, chairman Robert Coury step down—as well as forfeit his one-time “chairman grant” and additional 2016 equity grants. The entities also insist Coury be paid a “pro rata amount of non-executive chairman’s “cash retainer” through the date of separation.”

The letter contains the following reform orders:

1. “Negotiate a final separation agreement with current Chairman Robert Coury, pursuant to which there is mutual agreement with Mr. Coury to step down promptly as Chairman, to forfeit his one- time “chairman grant” and any other equity grants made to him in mid-2016 and be paid only a pro rata amount of non-executive Chairman’s “cash retainer” through the date of his separation.

2. Establish the role of Independent Chair and name an interim Independent Chair to lead the Board until a well-qualified director candidate is identified to join the Board and serve as Independent Chair.

3. Reconstitute the Board with a substantial majority of new, diverse, and genuinely independent directors. The Board should retain one or more independent director search firms to conduct an expedited search for new independent directors from a diverse pool of candidates. The firms should (a) report directly to the Governance and Nominating Committee, and (b) consult with a diverse group of Mylan’s long-term shareowners to solicit views on the desired skills, experience and qualities of potential candidates, as well as on possible names.

To inform the Board’s director search process and to facilitate related shareowner engagement, we request that you prepare and disclose a matrix of director qualifications that goes beyond industry, marketing, international, finance/capital allocation, accounting and government/public policy experience to include corporate governance, talent management, business ethics, real estate, risk management, technology/systems and racial, ethnic and gender diversity. Such matrix should also be included in the company’s future proxy statements.”

The comptrollers and Sheehan’s letter also pledged for Mylan to take additional steps to “enhance the Board’s independent oversight of executive compensation and drug pricing strategy and risks, and to strengthen the accountability of both the Board and management.” These include hiring a new independent compensation consultant, adopting a clawback policy—which would allow the compensation committee to recoup incentive compensation from any senior executive in the case of misconduct and failure in their responsibility to manage such, the public disclosure of remedial and forward-looking actions, and adopting a majority voting policy for uncontested director elections.

“Elections matter. Oversight matters. Accountability matters. This is simple,” Stringer said in a statement. “Shareowners cast majority or near majority votes against several directors. By keeping them in the boardroom, Mylan would be yet again ignoring the very shareowners it is supposed to represent. Continuing down this path will only further undermine investor confidence.”

“The Mylan Board respectfully acknowledges the votes of shareholders on the Say-on-Pay Vote, as well as in respect of the re-election of its board members,” the board said in the filing. “In response, the Mylan Board will engage in an extensive program of shareholder outreach over the coming months in order to elicit and understand the perspectives of Mylan’s shareholders. This outreach will be the first stage of a careful review that the Mylan Board will undertake going forward in response to the vote.”